- While markets are bouncing back from March crash, attractive themes for sustainable long-term returns are closely eyed.
- Some are raising capital to improve financial flexibility, others are acquiring value-accretive opportunities.
- Retail businesses are also returning to normalcy as restrictions are easing globally backed by heightened e-tailing, but changes in consumer behaviour will likely impact the future.
- Some Industrials sector companies have also performed strongly amid this period of uncertainty, while business confidence is likely to play an important role here.
COVID-19 has impacted businesses idiosyncratically, some are taking leaps and bounds, while some are struggling to stay afloat. But the silver lining is that Australia’s efforts to contain the virus have been largely successful, while economic activities are gradually resuming.
And with equity markets recovering from March bearish phase, market players are closely eyeing investment avenues that can position them better for mid-to large term. In this context, let us look at companies that have not faced material impacts due to COVID-19.
Kogan.com Ltd (ASX:KGN)
Kogan.com has been the star performer in COVID-19 era. It has completed capital raising, which includes a fully-underwritten placement of $100 million at an offer price of $11.45 per share. It is also offering a Share Purchase Plan to eligible shareholders, seeking to raise an additional $15 million.
It would utilise the capital to proactively tap value accretive opportunities. Management believes that the business is well positioned to take leaps in current environment due to its ability to deliver synergies through proprietary systems, lower cost of doing business, and expanded supply chains.
KGN is focused on tapping opportunities that would deliver value, drive customer base, expand offerings and improve its operating model. Earlier with the acquisitions of Dick Smith and Matt Blatt, the business has been able to extract these values.
Management noted that the business, despite paying regular dividends, has not raised capital since its listing in July 2016, indicating Kogan.com is a high cash generative business.
On 11 June 2020, KGN was trading at $13.76, up by ~11% (12:51 PM AEST).
Premier Investment Limited (ASX:PMV)
Premier Investment has been an early adopter to embrace the shift to digital channel in retailing. It has been investing in online technology, marketing and people over the past decade. Its order fulfilment in Australia is serviced by owned-distribution centre, which is a result of investment in 2013.
In its update last month, the company noted that online sales surged in Australia. Its largest online brand in the country was consistently breaking weekly records. Since NZ lifted COVID-19 containment measures, the online business witnessed a significant jump in sales.
In ANZ, its retail store leases that are expiring in 2020 or are in holdover mode constitute for around 70%, providing maximum flexibility. Premier did not pay rent during the period when stores were closed across its markets.
Excluding airport and some CBD stores, all stores started trading again since 15 May 2020 in Australia. Likewise, PMV’s all stores in NZ re-opened on 14 May 2020. In the last update, the company was uncertain on its stores re-opening in the UK, but the Government has decided to re-open non-essential retail stores from 15 June 2020.
Stores in the Republic of Ireland were scheduled to remain closed at least until 29 June 2020, but some of retail stores re-opened last week according to media reports. Premier’s stores in Hong Kong were trading. In Singapore, its stores were closed on 6 April, while 18 stores re-opened in Malaysia on 4 May 2020.
On 11 June 2020, PMV was trading at $16.750, down by ~3% (12:51 PM AEST).
NRW Holdings Limited (ASX:NWH)
NWH provides service to mining, civil infrastructure, energy, and urban development sectors. Recently, the company paid an interim dividend of 2.5 cents per share, which was deferred earlier due to COVID-19.
It was said that there no material impacts on supply chains related to the projects, drill and blast operations, and mining. The company’s planned activities had not suffered material change across its business verticals.
In the financial year to April 2020, the business has delivered record revenue of $1.6 billion compared to any full financial years. Ex-AASB 16, EBITDA for the period was $177 million, while cash less interest-bearing debt was $115 million as at 30 April 2020.
NWH said integration of BGC Contracting is on track. Its mining tech business along engineering business secured a $17 million fabrication works. Contracting business has been selected as one of the two bidders for $215 million contracts by the WA Government. In April, tunnel boring at Forrestfield Airport Link of twin 8km tunnels was completed. Besides, the company is on track to meet revenue guidance of $2 billion.
On 11 June 2020, NWH was trading at $2.025, down by 5.4% (12:51 PM AEST).
Johns Lyng Group Limited (ASX:JLG)
Yesterday, Johns Lyng Group upgraded its revenue and EBITDA guidance for FY20. It is now expecting revenue of $470 million, which means a growth of 40% over the previous year and around 12% increase from the previous guidance.
Likewise, the upgraded EBITDA guidance of $39 million, represents a growth of 68% over the previous year and around 10% increase from the previous guidance. The company has witnessed strong demand for its services after increased catastrophic events in the current financial year.
Also, the demand was driven by strong performance across core business activity irrespective of COVID-19. JLG’s Insurance Building & Restoration Services businesses have continued with the strong first-half performance.
On 11 June 2020, JLG was trading at $2.630, up by ~3% (12:51 PM AEST).
Baby Bunting Group Limited (ASX:BBN)
In the second-half to 17 May 2020, total sales growth of the business was 13.2%, comparable sales growth was 8.1% and online sales, which constituted 17.3% of total sales, grew 66% over the previous corresponding period.
Over the financial year to 17 May 2020, total sales growth was 10.3% with comparable sales growth of 3.4%. It was noted that many new customers were onboarded by the brand during the COVID-19 period.
BBN’s no contact ‘click and collect service’ has been popular among the customers. Due to higher logistics costs, the gross margins in online sales is relatively lower than in-store sales. It was said that in the early period of lockdowns, sales were skewed towards lower margin products, but sales were diverted to other products progressively.
Since restrictions have eased, the brand has seen demand picking-up in travel-related products. Management was uncertain about the impact of sales mix on gross margins. At the same time, the business has experienced an increase in costs to manage a changing operating environment.
In March, the company withdrew its guidance for FY20. Presently, the business is trading in the last part of the financial year, an important promotional period, but management remains uncertain about consumer behaviour, sales and margins.
On 11 June 2020, BBN was trading at $3.190, down by 1.3% (12:51 PM AEST).
Economic activity is resuming in the country and abroad, which appears to be a sweet spot for businesses and households. However, delay in medical breakthrough and potential second-wave remains a concern.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.
As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.